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He PA (LSE:BP) share price has had a tough 2024 and I found it too cheap to resist. So I bought the FTSE 100 oil and gas giant in September and November at what I thought was a bargain valuation of less than six times earnings.
I'm down 7.7% so far, but since my goal is to hold the stock for years and ideally decades, these are early days.
Long-term BP investors will have had it tougher, with shares down 18.93% in 12 months. The final yield of 5.95% will only partially offset that loss. The obvious culprit is the price of oil: Brent crude will fall 6.36% in 2024, to $71.04 a barrel.
Can these FTSE 100 stocks bounce back strongly next year?
BP is more than just an oil producer, but its shares are still closely correlated with energy prices. We saw it during the 2022 energy crisis when they skyrocketed.
Where the oil will go next is anyone's guess. There are so many variables at play. US President-elect Donald Trump has pledged to increase shale production next year. By increasing supply, Trump could drive down the price. Although if he gets the US economy going again, this could boost demand. But a trade war could cause it to fall again.
Trump has promised to bring peace to Ukraine. If successful, Russian oil and gas could flow back to Europe, driving down prices. But what happens if you don't?
Then there is Saudi Arabia. In September, there were rumors that it would open the taps to regain lost market share, which would drive prices down even further. However, last week, OPEC+ delayed the start of its production increase and slowed the pace of output increases.
I just read oil prices.com that natural gas prices will increase this winter “due to a combination of high demand, tight supply and limited production increases”. And I haven't even mentioned the green transition.
Will the shift to renewables crush fossil fuel prices? Or will falling oil and gas prices kill off renewable energy? This is a big deal for BP in particular as it reverses its 'Beyond Oil' strategy and returns to familiar fossil territory.
It's too much for my little brain. So what do the experts say? On Friday (December 6), Morgan Stanley forecast Brent crude would average $70 a barrel in the second half of 2025. If correct, that won't light a fire under BP's share price.
However, all 26 analysts offering one-year share price forecasts are optimistic. They have set an average target of 505.8 pence, 34.25% higher than today. It seems optimistic, but I hope they are right. Of these, 11 call it Strong Buy, four call it Buy and 14 say Hold. Only one says Sell.
I can justify my decision to buy BP for diversification reasons. It had no energy stocks. Furthermore, its shares were very cheap. And the dividend is high and increasing. Next year it is expected to reach 6.3%, covered exactly twice as much by profits.
Personally, I don't know where BP stock will go in 2025. Nobody knows. But given the low valuation and high performance, I'm happy to go down the road.
